£330bn could be spent on oil and gas extraction in UK waters – study

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Up to £330 billion could be spent on oil and gas extraction in the UK Continental Shelf over the next 32 years, according to a new study.

Professor Alex Kemp and Linda Stephen from the University of Aberdeen used financial simulation modelling to assess key exploration and development risks.

The study indicated the “ambitious” targets set out by the Oil and Gas Authority are achievable in the context of recent oil and gas prices, and the cost reductions and productivity increases effected over the past few years being maintained.

In one model, using 60 US dollars per barrel and 55p per therm of gas, the study found 14.8 billion barrels of oil equivalent (bn boe) could be produced between 2018 and 2050.

Under this scenario development expenditures could accumulate to £124 billion by 2050 at today’s prices while operating expenditures could accumulate to £147 billion by 2050 and decommissioning expenditures to £53 billion.

However the study paper stated: “It should be stressed that there are significant downside risks relating to this finding. In particular the achievement of 14.8 bn boe depends substantially on the development of 421 new fields of which no less than 295 are in the category of technical reserves.

“The development of these fields is by no means certain even though they pass the stipulated investment hurdle.

“They are not yet at the planning stage. For the nearer term in particular much depends on the ability of investors to take advantage of the current physical capacity of the supply chain to proceed with projects.”

When a price level of 70 dollars and 60p in real terms was used for modelling, long-term activity was found to be significantly higher.

Under this scenario more than 17 billion barrels could be recovered by 2050.

Field development expenditures accumulate to £158 billion, and field operating expenditures accumulate to £172 billion.

The report said the danger of cost inflation was greater in this scenario and noted this could endanger the economic viability of some projects despite the higher oil and gas prices.

The study concluded: “The overall conclusions are that in current circumstances the remaining potential in the UKCS is very substantial.

“The important caveats are that the benefits of the painfully-achieved cost reductions, and the productivity gains from enhanced production efficiency have to be maintained.”

Oil & Gas UK Upstream Policy Director Mike Tholen said: “This is an interesting paper which shows that industry’s Vision 2035 is within our grasp. Securing fresh investment in exploration and development activity on the UK Continental Shelf is the key to unlocking this opportunity.

“As our recent Economic Report highlighted, the challenge now is to build upon the solid investment conditions which have improved our competitiveness.

“The UK’s offshore oil and gas industry is at the beating heart of our society, essential for security of supply, supporting hundreds of thousands of highly skilled jobs and contributing billions to the economy.

“By adding a generation of productive life to the basin and expanding the UK supply chain’s global footprint, this shows the important role industry will play for many years to come.”

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